5 Variable Costing Format Variable Costing And Ab
1. Please provide general discussion on variable costing with inline citations, and supporting with the example below
Unit price | $500 | Variable Costing Income Statement | |||
Unit Direct materials | $100 | sales | $700,000 | ||
Unit direct labor | $80 | variable costs | |||
Unit Indirect materials | $50 | Direct materials | $140,000 | ||
Unit indirect labor | $40 | Direct labor | $112,000 | ||
Unit variable selling and admin | $20 | Indirect materials | $70,000 | ||
Fixed over head | $10,000 | Iniderct labor | $56,000 | ||
Fixed selling and admin | $80,000 | Variable selling and admin | $28,000 | ||
Units sold | 1400 | $406,000 | |||
CM | $294,000 | ||||
Fixed costs | |||||
Fixed overhead | $10,000 | ||||
Fixed selling and admin | $80,000 | ||||
$90,000 | |||||
Operating income | $204,000 |
2. Please provide general discussion on Absorption costing income statement and its difference from variable costing format provide inline citation. Include the example below.
Unit Price | $400 | ||||
unit direct materials | $40 | ||||
Unit diirect labor | $40 | ||||
unit indirect material | $10 | ||||
unit indirect labour | $5 | ||||
unit variable selling and admin | $12 | ||||
fixed overhead | $100,000 | ||||
fixed selling and admin | $50,000 | ||||
Period 1 | Period 2 | ||||
units sold | 60000 | 40000 | |||
units manufactured | 80000 | 20000 | |||
note: all units manufactured should be sold at the end of period 2 | |||||
So if we do income statement right the sum of the incomes in the two periods will be the same in both formats, Despite monthly incomes being different as shown below. | |||||
fixed over head absorbed in each unit manufactured in period 1 | $1.25 | ||||
fixed over head absorbed in each unit manufactured in period 2 | $5 |
Variable Costing Format | Absorption Costing Format | |||||
period 1 | period 2 | period 1 | period 2 | |||
Sales | $24,000,000 | $16,000,000 | Sales | $ 24,000,000 | $ 16,000,000 | |
variable costs | variable costs | |||||
direct Materials | $2,400,000 | $1,600,000 | direct Materials | $ 2,400,000 | $ 1,600,000 | |
direct labour | $2,400,000 | $1,600,000 | direct labour | $ 2,400,000 | $ 1,600,000 | |
indirect materials | $600,000 | $400,000 | indirect materials | $ 600,000 | $ 400,000 | |
indirect labour | $300,000 | $200,000 | indirect labour | $ 300,000 | $ 200,000 | |
variable selling and admin | $720,000 | $480,000 | fixed overhead | $ 75,000 | $ 125,000 | |
variable costs | $6,420,000 | $4,280,000 | Manufacturing Cost | $ 5,775,000 | $ 3,925,000 | |
CM | $17,580,000 | $11,720,000 | Gross Margin | $ 18,225,000 | $ 12,075,000 | |
Fixed Cost | Selling & Admin Cost | |||||
fixed over head | $100,000 | $100,000 | Variable selling $ admin | $720,000 | $480,000 | |
fixed selling and admin | $50,000 | $50,000 | Fixed selling & admin | $50,000 | $50,000 | |
total fixed costs | $150,000 | $150,000 | Selling & admin Cost | $770,000 | $530,000 | |
operating income | $17,430,000 | $11,570,000 | Operating Income | $17,455,000 | $11,545,000 | |
$29,000,000 | $29,000,000 |